Answer to Question #309399 in Macroeconomics for lydia

Question

suppose an economy is described by the following equation:

Y = C + I + G + X - M

C = 14 + 0.60Yd

I = 20

G = 10

X = 15

M = 5 +0.1Y

T =20 +0.4 Y

(a) Find out the equilibrium value of income

(b)Calculate net export

(c) what is the value of export multiplier?

(d) if the equilibrium national income at full employment is N$202, what should be the increase in government spending or in exports to attain the full employment level of income?

Answer 1

$Y = C + I + G + X - M$

$C = 14 + 0.60Yd$

$I = 20$

$G = 10$

$X = 15$

$M = 5 +0.1Y$

$T =20 +0.4 Y$

(a) Find out the equilibrium value of income

The expenditure approach method is given by;

$Y=C+I+G+(X-M)$

Therefore;

$Y=14+0.60(Y-(20 +0.4 Y)+20+10+(15-(20+0.4Y)$

$Y=0.60Y-12-0.24Y+30+15-20-0.4Y$

Put like terms together and simplify

$Y-0.60Y+0.24Y+0.4Y=8$

$1.04Y=8$

$Y=\frac{8}{1.04}$

$Y=7.69$

b)$net export=exports -imports$

$=15-(5+0.1Y)$

$=15-((5+(0.1\times7.69)$

$=15-0.769$

$=14.231$

c)$export multiplier=0.1Y$

$=0.1\times7.69$

$=0.769$

d)$202=0.60Y-12-0.24Y+30+15-20-0.4Y$

Put like terms together

$202+12-30-15+20=0.60Y-0.24Y-0.4Y$

$189=-0.04Y$

$Y=\frac{189}{-0.04}$

$Y=4725$

Y=$4,725